The RBA Held Rates. That's Not the Same as Good News.

The Reserve Bank held the cash rate at 4.35% today. It is the first pause after three consecutive hikes this year. The board discussed hiking again and decided not to. They did not discuss a cut.

Three rate rises since February have undone every cut delivered in 2025. The cash rate is back at the same peak it held for two years before the RBA started cutting. Borrowers who adjusted to lower repayments last year are back to square one.

Why the RBA stopped

The pause did not happen because inflation is under control. Westpac forecasts trimmed mean inflation, the measure the RBA watches most closely, will peak at 3.8% later this year, above earlier projections. Headline inflation is tracking toward 4.8%. Both sit well above the 2-3% target band.

The hold happened because the economy is showing strain. Household spending fell 1.1% in April. Employment dropped by 18,600. Mortgage demand, which was up 10.7% in January, has swung to a 6.6% decline in May. First home buyer applications are down sharply in every major state, with double-digit declines in Queensland, Victoria, NSW, and South Australia.

Governor Bullock said the board is seeing "signs that rate hikes are working." That means demand is falling, which is the intended effect, even if it does not feel like progress to anyone paying the higher rate.

The bind

This puts the RBA in a difficult position. Inflation says keep tightening. The economy says stop.

The board landed on pause, not reversal. Westpac expects two more hikes in August and September, potentially pushing the rate to 4.85%. ANZ expects the rate to hold through 2026, but acknowledges a hike in August is possible if second-quarter inflation surprises upward.

The gap between those two forecasts tells you how uncertain the path is. And the RBA is not narrowing it. Their statement repeated that they are "not ruling anything in or out."

What to do

Plan around 4.35% as a floor, not a ceiling. The RBA did not discuss cutting. Westpac's base case has the rate at 4.85% by September. If your budget or cash flow depends on rates coming down, rerun the numbers at the current rate and at 50 basis points higher. The time to stress-test is when the pressure eases slightly, not when it resumes.

Use the pause to restructure, not to relax. Three hikes in three months is fast. Most households and businesses adjust spending gradually, which means the full impact of the February, March, and May increases is still working through. If you have been absorbing higher repayments by deferring maintenance, drawing down savings, or letting supplier terms drift, this pause is the window to reset those before a potential fourth hike.

Watch one number: Q2 trimmed mean CPI. Due late July, before the August 11 meeting. This is the data point that determines whether the hiking cycle resumes or the pause extends. If trimmed mean stays above 3.5%, the case for another hike strengthens. If it softens, the RBA has cover to hold for the rest of the year.

This article is general information only and is not financial advice.